The Scottish Parliament’s controversial land reforms were supposed to sweep away the ancient feudal system of land ownership and hand power to the people.

Instead they may leave the taxpayer with a bill for £55 million and deliver large chunks of cash to Scotland’s ancient landed families, while reducing their inheritance tax liabilities.

At the root of the problem is nothing so mundane as access to the hills and glens but the booming industry in Scottish barony titles that sell on average for £55,000 each. About 1,000 “good” titles are believed to exist.

Dismissed by some as vanity titles, upheld by others as Scotland’s heritage, these are not aristocratic titles, but go with land — these days no more than a token plot to keep things legal.

But a baron can call himself Baron So-and-so, his wife takes the courtesy title of lady and, crucially, he can apply, regardless of nationality, for a baron’s coat of arms that can be passed on to heirs. (Women don’t bother, they don’t see the point.) But in an attempt to grapple with the implications of land reform legislation, Scotland’s heraldic supremo, the Lord Lyon King of Arms, has said that he can no longer recognise barons.

The “nouveau baronage”, often foreigners of Scots descent, believe his edict devalues their baronies. They are planning a judicial review to overturn the ruling and, if unsuccessful, say they will demand compensation for loss of assets under European Human Rights legislation now enshrined in Scots law.

The “ancien baronage”, on the other hand, has little to lose and much to gain. Many old families who own bundles of baronies, yet disdain the trade, see the soaring value of baronies as a liability.

Niall Livingston, Younger of Bachuil, the spokesman for the Convention of the Baronage of Scotland, said: “The majority of our members have become increasingly worried about the sale of barony titles. This worry has been exacerbated by the Inland Revenue practice of charging death duties (inheritance tax) on a nominal valuation.”

As long as the “nouveau baronage” is defeated and Lord Lyon’s edict stands, Livingston’s members can die happy. But the man orchestrating the legal action, title-broker Brian Hamilton, Baron of Rockhall in Dumfriesshire, says that he knows whose bespoke Edinburgh lawyers will be first in the queue for compensation if things get that far.

“I know of one aristocrat with more than 20 titles who has never had any intention of selling his baronies and considers the title trade very infra dig. But I don’t imagine he and others will ignore the prospect of compensation — and I don’t blame them.”

Lord Lyon, in real life a retired Edinburgh lawyer, Robin Blair, insists that he has not abolished baronies. But now that Parliament has decreed baronies will no longer be entered in public land registers, he says he has no way of checking who owns them. If he cannot be sure he cannot grant a baron’s coat of arms, one of the key reasons for buying a barony.

“The only change I have indicated is I will not in future grant the baronial addittament (a red cap or chapeau on a coat of arms) because I will have no foolproof method of knowing whether an applicant is the only owner of the barony,” he said.

Fair enough, says Hamilton, a former North Sea welder with a degree in land economy, but the real effect is to render the titles almost worthless. “It’s abolition by the back door,” he says, while pointing out that the Scottish Law Commission warned Parliament, which agreed, that abolition of baronies could incur claims for compensation.

The Scottish Executive says it is entirely Lord Lyon’s affair: although it may change its mind if a bill for £55 million drops through the Holyrood letterbox.